Finra bars broker and orders $250,000 penalty for fraudulent annuity sales

Finra has barred a broker and ordered him to pay approximately $250,000 in penalties for fraudulent annuity recommendations made to an elderly customer.
The broker, Bernard McGee, surrendered four variable annuity policies owned by his 71-year-old client, valued at approximately $500,000, and used the proceeds to buy a charitable gift annuity from a company that was ultimately found to be fraudulent, according to a document filed by the Financial Industry Regulatory Authority Inc.’s Department of Enforcement on July 18.
Mr. McGee allegedly made material misrepresentations to induce the customer to surrender the VAs — which represented about half of her net worth — and purchase the charitable gift annuity, by falsely telling her she was facing a large tax liability, which the CGA would offset.
The broker also failed to disclose to the customer the compensation — a 10% commission of about $50,000 — he received in connection with the purchase of the charitable gift annuity from the company 54Freedom, according to Finra. The customer incurred approximately $36,000 in surrender charges.
Due to willful omissions of material fact, which constitutes securities fraud, as well the unsuitable nature of the recommendation, Finra ordered Mr. McGee — who at the time of the incident in 2011 was a registered representative at independent broker-dealer Cadaret Grant & Co. Inc. — to pay approximately $238,000, plus interest, in restitution, as well as about $14,000 in hearing fees.
The case, Department of Enforcement v. Bernard McGee, was on appeal from a prior hearing initiated at the end of 2013. Finra’s decision in the appeal was a bit more lenient than that in the original hearing. It declined to impose sanctions for three causes of action, in light of barring Mr. McGee from the industry for separate causes of action, and overturned the decision to disgorge the commissions received by Mr. McGee.
Attorneys representing Mr. McGee — Stephen Davoli and Kevin Van Duser, both partners at the Sugarman Law Firm — didn’t return requests for comment.